What to Do if Debt Has You Worried During the Pandemic
The coronavirus outbreak has turned the whole world upside down. Aside from giving every single person on the planet a reason to worry about their health, both individuals and businesses are feeling the financial pressure associated with global macroeconomic slowdown. With or without testing positive for the infection, millions are on the brink of missing payments, defaulting on loans and suffering hits to their credit scores. If you suspect you might fall behind on managing debt, it might help to know that there are ways to find relief depending on who you owe money to, and whether or not they are flexible about repayment. Here are a few tips on how to manage debt in the economic climate of the pandemic:
1. Renegotiate with Your Lender:
If you suspect you might fall behind on a payment, get in touch with your lender ahead of time and ask if they’re willing to give you a grace period. Large institutions might be willing to put your loan in forbearance, whereas small lenders could be receptive to restructured smaller pavement plans. Keep in mind however that if you renegotiate or restructure your debt, it could have a bigger impact on the interest rates you pay, so evaluate the situation carefully.
2. Call a Credit Counselor:
If your debt situation is complex and extremely overwhelming, a credit counselor might be able to craft a helpful plan on your behalf. These are exactly the kind of circumstances where advice on budgeting and risk-management mean the difference between survival and bankruptcy. Make sure to only work with reputable financial advisers who are transparent about serving your interests first.
3. Consolidate Your Debt:
If you have multiple lines of credit, and the minimum payments due exceed your present income, it might be advantageous to reduce those payments by consolidating your debt. This type of refinancing decreases your credit score significantly, but it has the benefit of concentrating monthly payments into one single bill with a potentially lower interest rate. Not only will this reduce your expenses per month, but it will also give you more time to repay.
4. Prioritize Your Spending:
Spending money on things you don’t need is the quickest way to burden yourself with mushrooming credit balances during this crisis. If a spending decision won’t have any impact on your health and well-being, pause to evaluate whether you can actually do without it. Get rid of any and all recurring payments or subscriptions which eat into your savings.
If you end up in the unfortunate position of having to decide which debt to honor and which to default on, remember to put first-things-first by servicing essential loans above all others. Keep making payments on necessary debt like home loans or auto loans, and sacrifice unsecured debt if you have to. Penalties to your credit score might be problematic, but if you fail to service essential loans first, your life will suffer disruptions which would result in dramatic inconvenience or even harm. Prioritize your safety and health over lifestyle.